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Tax Exempt Gifts

Gift Tax

The gift tax applies to transfers by gift of property. You make a gift if you give property (including money), the use of property, or the right to receive income from property without expecting to receive something of at least equal value in return. If you sell something for less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule.

Generally, the following gifts are not taxable gifts:

Gifts, excluding gifts of future interests, that are not more than the annual exclusion for the calendar year,

Tuition or medical expenses paid directly to an educational or medical institution for someone else,

Gifts to your spouse,

Gifts to a political organization for its use, and

Gifts to charities.

Annual exclusion. A separate annual exclusion applies to each person to whom you make a gift. The gift tax annual exclusion is subject to cost-of-living increases.

Currently, you generally can give gifts valued up to $13,000 per person, to any number of people, and none of the gifts will be taxable.

However, gifts of future interests cannot be excluded under the annual exclusion. A gift of a future interest is a gift that is limited so that its use, possession, or enjoyment will begin at some point in the future.

If you are married, both you and your spouse can separately give gifts valued up to $13,000 to the same person without making a taxable gift. If one of you gives more than the $13,000 exclusion, see Gift Splitting, later.

Example 1. You give your niece a cash gift of $8,000. It is your only gift to her this year. The gift is not a taxable gift because it is not more than the $13,000 annual exclusion.

Example 2. You pay the $15,000 college tuition of your friend directly to his college. Because the payment qualifies for the educational exclusion, the gift is not a taxable gift.

Example 3. You give $25,000 to your 25-year-old daughter. The first $13,000 of your gift is not subject to the gift tax because of the annual exclusion. The remaining $12,000 is a taxable gift. As explained later under Applying the Unified Credit to Gift Tax, you may not have to pay the gift tax on the remaining $12,000. However, you do have to file a gift tax return.

More information. See Form 709 and its instructions for more information about taxable gifts.

Who does not need to file. If you meet all of the following requirements, you are not required to file Form 709:

You made no gifts during the year to your spouse,

You did not give more than $14,000 to any one donee, and

All the gifts you made were of present interests.

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DISCLAIMER: The author of this website is not a medical doctor or attorney. Content is intended as reference information only and not as professional medical or legal advice.